Practice: The Rebound

With economic indicators showing signs of recovery, architecture firms are putting their rebuilding strategies in place.

Any architect who’s been in business for a few years knows that staying competitive requires an outlay of time and money. In 2003, Mark LePage, AIA, decided it was time to move Fivecat Studio—the Pleasantville, N.Y., firm he runs with his wife, Annmarie McCarthy, AIA—out of their house and into 2,000 square feet of leased office space. He spent about $15,000 upgrading the build-out with an open-plan studio and private office, plus a high-end reception desk and a conference room where he envisioned making multimedia presentations to new-home clients.

LePage spent the next two years working alone in the studio while McCarthy continued to work from home. Then, true to his business plan, he filled the space with employees between 2005 and 2008. In that final year, the firm was on track to top $1 million in revenues. Then came the economic crash, and with it remodeling remorse.

In hindsight, “it was a mistake to do this before we really understood the market we were in—additions and renovations. Westchester County is all built out,” LePage says. “Since move-in, we could probably count [on one hand] the number of people who’ve come into the studio, because we meet clients at their home.” He wishes he’d leased only half the space and geared up for production rather than for the public. Now that the dust has settled, LePage is back to one employee and estimates he will spend the next two years paying off debts incurred during the downturn.

It’s a rookie mistake, and yet he followed standard business school advice about how to nurture a business. “You’re told to invest in yourself, get a nice place, but I think the context has really changed,” says Rena Klein, FAIA, owner of RM Klein Consulting in Seattle. “There are ways to do things that involve less risk and a more incremental approach.”

The question of how to wisely reinvest profits might seem overly optimistic these days. Many architects are still digging themselves out of the economic wreckage, having had to use their savings and every last penny they were generating just to stay afloat. But as revenues trickle back in, the key questions are: What have we learned during the past five years? How do successful firms strategically spend their money? What, if anything, has changed? And what are they investing in now to meet the rising demand?

Rebuilding Blocks

When it comes to industry trends and smart management practices, technology, marketing, and staff well-being are all examples of money wisely spent, says Seattle-based management expert Rena Klein. So is investment in advanced learning to stay ahead of competitors in your niche. But firms that reinvest their profits successfully make decisions within the context of a plan, whether it’s an annual budget or a long-term business development strategy, she says.

About that advanced learning: Spending money on a specialization should result in the ability to deliver more value, but the return on this investment isn’t always clear. Take sustainability certification. “I have seen people spend a lot of money on Passive House education without being able to translate that into projects, at least not yet,” she says. “Others pay for every person on staff to become LEED certified, yet the clients they look for are not necessarily interested in doing LEED buildings. You have to think about the sweet spot that intersects with the market you’re serving.”Klein also encourages small practitioners to think about technology upgrades in the context of other necessities. Most architects pay attention to technology now, and that is the first place any extra money will go. However, she advises people, particularly in these times, to set up a budget (about 10 percent of net operating revenue) for marketing. That includes what Klein calls relationship marketing—talking to people at events, not just online through social media outlets. “People forget that the principal’s time is also an investment in rebuilding during the recovery,” she says.

— Cheryl Weber, LEED AP

Expansion Mode The housing bust casts former spending habits in a new, often unflattering, light. Michael Woodley, AIA, president of Woodley Architectural Group, took his entire staff to visit a large commission in Hawaii just as the economy started to crumble. “I felt stupid; now we’re cautious even about attending conferences,” says Woodley, who specializes in production housing and oversees 16 employees in Denver and Santa Ana, Calif. However, he’s clung to one principle that has formed the basis of his success. When three top-notch job candidates crossed his doorstep recently, he hired them even though he wasn’t recruiting. For Woodley, it wasn’t a splurge. “We hire for life,” he says. “It felt right, and now we’re super-busy.”

Wiedemann Architects, in Bethesda, Md., is ramping up investment in software upgrades and staff training—expenditures that principal Gregory Wiedemann, AIA, put off when things were uncertain. But savvy planning helped the firm ride out the recession. Over the years, it has evolved into a practice that can manage large and small jobs profitably. Strategic hiring also has fed its diversification goals, leading to enough projects to prevent downsizing. “We work in a traditionally minded town that has a growing interest in modern design, and our seven employees reflect those different interests,” he says.

KGA Studio Architects, in Boulder, Colo., which designs custom and production houses, is focused on upgrading CAD programs, as well as replenishing the staff roster. The 36-year-old firm has a workforce of 12, down from 18, but senior partner Jerry Gloss, AIA, is cautiously upbeat about the volume of new work coming through the door. After loading up a four-month backlog of projects, he gave employees a choice: Did they want to work more hours or hire someone back?

“You can ask those questions when you have trusted employees,” says Gloss, who recently welcomed back three former staffers. The Great Recession, he says, was “a real head-thumper that informs every decision we make. If the cash flow is good now, do we just give a bonus and not commit to a salary raise? Everything we do from here out will be rather guarded.”

Everyone is trying to stay nimble now. In San Diego, Kevin deFreitas, AIA, has a business model that allows him to expand and contract without the painful process of hiring and firing. He has a digital practice involving four other Southern California architects working independently in home studios. “Part of this business model is based on the fact that I’m a terrible personnel manager,” he says. Another benefit: His co-collaborators are experienced, requiring less oversight than junior staff.

Business development should be part of every firm’s expense sheet, yet it feels like a luxury when you’re living hand-to-mouth. DeFreitas says his model’s low overhead and increased profitability buy time for targeted volunteer work and networking, such as organizing a book drive for the local AIA chapter and serving on the San Diego Architectural Foundation board. Technology is deFreitas’s biggest cash outlay, and he finally updated it last year, spending $3,500 on an AutoCAD seat and $1,200 on FormZ software.

Robin Osler, AIA, LEED AP, principal of Elmslie Osler Architect in New York City, also is trying to position her 17-year-old firm for the future by taking a hard look at the office’s infrastructure. While large firms seem to be going gangbusters, caution is the operative word among smaller practices these days. Architects report that the phone is ringing more, but projects are taking longer to lock in.

“My challenge was, okay, we get published a lot and have global companies reaching out to us, and yet we’re still a little fragile for my taste,” Osler says. “Even if we have a six-month backlog of work, it still makes me nervous.” Recently, she asked Rena Klein for help in solidifying the firm’s base. One decision they made was to step up marketing by redesigning the firm’s website and creating a public relations outreach matrix where Osler keeps track of people who have been contacted, what happened, and what she needs to do to follow up.

Another decision made was to invest in more sophisticated IT support. Technology is perhaps the toughest budget item for small residential practices, but Osler, who currently employs five people for work in both the residential and commercial sectors, wishes she’d done it sooner. After the office server crashed, the firm had to pay an enormous amount of money to retrieve files that weren’t backed up properly. “It took us a while to figure out we needed to spend this kind of money for IT services,” she says. “It makes us a little sick, but we realized that we were big enough that we needed to invest in someone with more skills to handle bigger demands on the system.”

Future Proofing Smart business development springs from a holistic look at a firm’s priorities, Klein says, and the type of practice it is, or wants to become. She encourages productivity-based firms to invest in the latest drafting and delivery technologies, while design-focused firms might bolster their core business by adding a specialty. “Do research, be a knowledge leader, write about it yourself,” she says. “You have to have a value proposition for the market you’re in.”

When the recession hit, Osler realized she needed to expand her expertise. So she launched Grow Studio, a design consultancy specializing in urban agriculture. The idea came after Anthropologie commissioned the firm to design a planted façade wall for a store in Huntsville, Ala. Then a nonprofit called Urban Farming asked for a similar system for growing food. Osler developed customizable wall panels that support crops and can be integrated into new or existing residential, commercial, or civic projects. The idea is to create healthier communities through architecture, as a response to consumers’ growing enthusiasm for locally produced food. Plotting the firm’s next steps “is about living and breathing all the other stuff that’s out there,” she says, “because that will inform the architecture.”

According to Klein, residential architects can benefit from bringing new ideas into their work. “People tend to be more successful if they’re specialized, but you can broaden that to include different ways of delivering projects,” she says.

A case in point is Boulder, Colo.’s Scott Rodwin, AIA, LEED AP, principal of Rodwin Architecture, one of hundreds of firms across the country that lost most of its clients in 2009. Ninety percent of his business disappeared within a six-month span. But rather than laying off his seven employees, he turned the firm’s sleepy “build” component—one small project a year, at the time—into a thriving enterprise that almost doubled its volume from 2007 to 2013.

One of Rodwin Architecture’s junior staff had been a builder for 12 years and was enthusiastic about ramping up the construction side. Rodwin spent 18 months and $150,000 to hire and train site supervisors and purchase new operating systems, including Revit. “It helped our quality control substantially,” he says. The firm’s construction arm became Skycastle Homes. “As we moved into becoming the builders, making sure our documents were complete and consistent became extra important, because we were financially responsible for anything missing.” The startup capital came from Rodwin’s personal savings, but by 2010 he was reinvesting some of the profits.

“We were looking for a more financially sustainable model and feel we do need to return to that role of the master builder in order to reclaim our place in making buildings,” he says. “But it requires an enormous commitment of time, expertise, and money to gain that back.”

During the slow period, he and his employees also established themselves as green building experts. Rodwin teamed up with a regional sustainable design leader to teach green building tenets to local builders and architects. Boulder County set up the lectures and charged a small fee to attendees. “We got paid pennies, but it upped our game and strengthened our reputation so that when the market came back, people knew about us,” he says.

As larger firms rise out of the recession fog, they too are laser-focused on positioning themselves for the future. Seattle-based Mithun is feeling the effects of the many talented architects who left the profession when work was scarce. “We had a wonderful landscape architect who decided to become an organic farmer, and a principal became a nonprofit director,” says CEO Bert Gregory, FAIA, LEED AP BD+C. “As the workload increases and the demographics shift and the output doesn’t quite ramp up, we’re challenged to find staff able to service us at the level required by our clients.”

Last year Mithun, which employs about 100 people, made a tremendous investment in intellectual capital when it merged with Daniel Solomon Design Partners in San Francisco. Gregory says the merger allows it to carve deeper inroads into high-density housing, student housing, urban planning, and transit-oriented development—all growth areas that emerged from its market research. “Over the last decade, the practice has received the strongest benefit from doing research and then finding the clients who are seeking new things—positioning themselves to be where they think the market is going in terms of all the things we need to do to accommodate population growth,” Gregory says.

At Mithun, that also means doing the math on energy performance and being savvy about costs, to maximize limited budgets in order to achieve clients’ sustainability goals. To stay ahead of the curve, staff members are offered perks for organizing educational sessions, which are held two or three times a week throughout the year. The classes vary from industry experts sharing the latest thinking about technical construction issues, to in-house architects discussing the projects they’re working on, to manufacturer reps explaining their products’ material content.

In a landscape still suffering from fallout, Olson Kundig Architects also has managed to weather the recent economic storms. Launched in the late 1960s, the Seattle firm has learned over the years how to expand its services so that it can ride the ups and downs. “We put in place some austerity measures and operated without feeling profitable, but we could cover ourselves and invest in things we wanted to do,” says principal Kirsten R. Murray, AIA. During the recession, for example, the firm made the transition from AutoCAD to Revit. Recently it added a 3D printer and laser cutter to the office tools.

Counterintuitively, perhaps, the firm also increased the amount of money spent on philanthropic and community outreach. In 2011, Olson Kundig leased vacant storefront space in its neighborhood to use for creating its own interactive exhibits and collaborating with local artists, Washington State University students, and the Seattle Art Museum. “We do a lot of things in that space with program partners, strengthening our exhibit-design expertise and connections in the cultural realm for when the economy comes back,” Murray says.

While small practitioners may not have the cash reserves or lines of credit that a corporation does, Olson Kundig’s solutions are scalable. “When we were a 12-person office with revenues under $1 million, we did similar things on a smaller scale,” Murray says. “One staff person worked on a projection screen for the office. When you learn a new thing, you keep staff engaged. Then when work comes back, the recovery is much quicker.”